A little over a year ago, tobacco giant Altria (NYSE: MO) placed a bet on an alternative to tobacco and invested $ 12.8 billion to secure a 35 percent stake in electronic cigarette maker Juul Labs. Just over a year later, Juul has used up almost all of the money and needs to tap the debt markets for another $ 700 million.
Now it looks like Altria’s investment was a costly mistake.
When reports of “lung disease” surfaced among e-cigarette “vapers” last year and the CDC and FDA both appeared to be turning against Juul, Altria was forced to bring repeated charges of the declining value of its investment – 4.5 billion $ 4.1 billion in November, and then another $ 4.1 billion just last month. In the latest report, Juul was valued at just $ 12 billion – less than Altria spent 15 months ago to acquire a third of the company.
And Altria is reluctant to keep throwing good money after bad. As The Wall Street Journal Tobacco giant reportedly informed Juul this morning that it will no longer cover marketing and retail costs. Instead, Altria’s help will be aimed at making sure Juul has a business simply by helping Juul get its products in the FDA review process – which Juul must do by May if it intends to keep e-cigarettes in the US to sell the US
And yet marketing and sales still need money. To cover those costs, Juul raised $ 785 million in convertible bonds (bonds that are convertible into stocks at a certain price) in August – and another $ 700 million today. If the e-cigarette market isn’t turning fast (Nielsen says Juul’s sales fell 25% in the four weeks ending Jan 25), this may not be the last time Juul will ask for a loan .
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